U.S. Equity Market Update. Credo Capital Management Tedd M. Alexander III Portfolio Manager October 8, 2012

Transcription

1 U.S. Equity Market Update Credo Capital Management Tedd M. Alexander III Portfolio Manager October 8, 2012

2 Markets Trend Positively but Multiple Macro Overhangs Europe 11/11 Italy s cost of borrowing at high 7%) increasing Euro debt fears 8/11 ECB cuts rate to 1% S& P 500 Index: September 2011 September /1/12 Spain econ double dips & 25% unemployed 11/28/11 Fitch holds US credit AAA 4/11/12 Euro debt crisis concerns bubble up again 5/12 Euro commission estimates Euro zone likely to contract 0.3% in /12 Markets reach interim low on weak US jobs & concern over EU growth S& P 500 Index: September 2011 July 2012 Daily % Change in Index Credo Capital Management LLC 1

3 Volatility Analysis (through 30/2012) Recession CBOE VIX Volatility Index Long-Term Capital Management Asian Financial Crisis 11 Global Financial Crisis Fears of Double-Dip Recession European Debt Crisis Flash Crash '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Credo Capital Management Credo Capital Management LLC 2

4 Stock Correlations Russell 1000 Growth Index Member Correlations (Trailing 30-day Average) Source: Credo Capital Management Analysis Credo Capital Management LLC 3

5 Deconstruction of Russell 3000 Index Returns 30.0% Price Performance Attributable to Changes in Forward Earnings Expectations and Changes in Valuation 30.0% 25.0% 20.0% 20.0% 15.0% 10.0% 0% 10.0% 0% 5.0% 0.0% 0.0% 5.0% 10.0% 10.0% 15.0% 20.0% 20.0% 25.0% 30.0% 30.0% Earnings Valuation Index Price Return Source: Credo Capital Management Analysis Credo Capital Management LLC 4

6 The Lost Decade 1,600 1,500 S&P 500 Index: January 2000 to August / /2007 S&P 500 1,527 S&P 500 1,565 8/31/2012 S&P ,400 1,300 1,200 1,100 1,000-49% +101% -57% +108% /2002 S&P S&P Credo Capital Management LLC 5

7 S&P 500 Index: Rolling Ten Year Returns Since % S&P 500 Total Return: January 1960 to August % 200% 100% 0% -100% Credo Capital Management LLC 6

8 S&P 500 Since 2000 S&P 500 Price 1,600 1,400 1,200 1, S&P 500 EPS S&P 500 P/E Credo Capital Management LLC 7

9 U.S. Corporate Net Debt 1 December 1997 to September 2012 of Total Assets Net Debt % o Source: Computstat, Factset, and Credo Capital Analysis. 1 Calculated using the top 1500 stocks in the Russell 3000 Index excluding certain industries primarily il within the financial i and utility sectors. The data points are annual starting ti with December The ratio used is Net Debt bt(c Cash and Shortterm Investments less Total Long-term Debt) over Total Assets. Balance sheets have improved since the early part of the recession as corporations have deleveraged and built up cash reserves. Credo Capital Management LLC 8

10 Valuation is a Compelling Reason to Invest in U.S. Equities Russell 3000 Index Expected Earnings Growth and Implied Exit P/E Multiple 35% % % % Year Exit Multiple (red line ) e) 15% 10% 5% Expected Earnings Growth (blue line Implied 0% 0.0 5% % % 15.0 /1/1998 /1/1998 /1/1998 /1/1998 /1/1999 /1/1999 /1/1999 /1/1999 /1/2000 /1/2000 /1/2000 /1/2000 /1/2001 /1/2001 /1/2001 /1/2001 /1/2002 /1/2002 /1/2002 /1/2002 /1/2003 /1/2003 /1/2003 /1/2003 /1/2004 /1/2004 /1/2004 /1/2004 /1/2005 /1/2005 /1/2005 /1/2005 /1/2006 /1/2006 /1/2006 /1/2006 /1/2007 /1/2007 /1/2007 /1/2007 /1/2008 /1/2008 /1/2008 /1/2008 /1/2009 /1/2009 /1/2009 /1/2009 /1/2010 /1/2010 /1/2010 /1/2010 /1/2011 /1/2011 /1/2011 /1/2011 /1/2012 /1/2012 /1/2012 Expected Earnings Growth Implied 2 Yr Exit P/E Source: Factset, Credo Capital Management Credo Capital Management LLC 9

11 It s Critical to Remain Invested in Stocks Even in a Down Market Average annual returns of the S&P 500 Index after declines of 20% or more (June 1962 to August 2012) Market Bottom 1-Year Later 2-Years Later 3-Years Later 5-Years Later 10-Years Later % 47.6% 34.2% N/A N/A 10/ % 22.2% 18.0% 20.3% N/A 10/ % 27.2% 13.0% 16.9% 32.0% 8/ % 30.8% 27.7% 44.9% 30.8% % 29.7% 14.3% 13.2% 15.0% 5/ % 29.9% 18.6% 6.1% 6.0% % 27.9% 19.6% 15.0% 10.5% Average Annual Returns 42.0% 30.8% 20.8% 19.4% 18.9% Source: Ned Davis Research, Inc - Example is for illustrative purposes only. Investors cannot invest directly in an index. The returns represent past performance and are not predictive of future results. Credo Capital Management LLC 10

12 The Price of Being Out of the Market (S&P 500 Index: January 2000 to August 2012) 0% -0.4% -5% If you If you If you If you If you were missed missed missed missed fully the 10 the 20 the 30 the 40 invested best best best best for the days days days days entire e period -6.1% 61% -10% -9.7% -12.8% -15% -15.6% -20% Example is for illustrative purposes only. Investors cannot invest directly in an index. The returns represent past performance and are not predictive of future results. Credo Capital Management LLC 11

13 Credo Overview Location: Baltimore, MD Ownership: Employees: 57.4% Assets Managed: $551MM (as of 30/12) Experience: 153 Years collectively AUM $800 $600 $400 $200 $0 AUM & Account Growth # of Accoun nts External Investors: 42.6% AUM Accounts Investment Strategies: Mid Cap Growth Small Cap Growth Inception May 05 Nov 08 AUM 30/12 $391MM $160MM $7 Client Breakdown by AUM ($M) $28 $7 $29 $7 $5 $23 Commingled Trust Corporate Corporate Pension Portfolio Manager Tedd Alexander HNWI Objective* Russell Mid Cap Growth Index + 2% per annum Russell 2000 Growth Index + 2% per annum $444 Insurance Co Public Pension Taft Hartley *Over three-year rolling periods F&E Credo Capital Management LLC 12

14 Investment Process Summary Preliminary Step 1: Step 2: Step 3: Portfolio Work Idea Discovery Fundamental Stock Selection Construction ti Analysis Reformulate consensus estimates for 1,000 companies to make them consistent and comparable ABACUS scores and ranks companies by their expected growth profile (Duration; Direction; Magnitude) Understand the important t levers for growth Look for hidden options or risk Combine subjective and objective inputs to compute target stock price ranges Build sector-neutral portfolio with active industry and company risk to exploit our stock selection skill Establishes a forward frame for analyzing expectations Generates 5 10 research candidates across all sectors weekly Confirms or refutes ABACUS growth profiles Reveals stocks that offer a favorable and asymmetric risk/reward payoff Reinforces and highlights our stock selection skill Credo Capital Management LLC 13

15 Investment Management & Trading Tedd M. Alexander III Managing Member, Portfolio Manager Industry experience: 27 years Morehouse College BA Computer Science Wharton School at University of Pennsylvania MBA Portfolio Manager Mid Cap Growth, Small Cap Growth George Sakellaris, CFA Director of Research, Sr. Research Analyst Industry experience: 11 years University of Maryland BS Physiology/Neurobiology University of Maryland Robert H. Smith School of Business MBA Technology; Producer Durables Steve Kohler, CFA Sr. Research Analyst Industry experience: 21 years University of Virginia BA Economics Tulane University A.B. Freeman School of Business MBA Energy; Materials & Processing David E. Saunders II Member, Sr. Research Analyst Industry experience: 18 years Wofford College BA Finance Johns Hopkins University Carey Business School MBA Co-Portfolio Manager Small Cap Growth Healthcare; Financial Services Andrew P. Lin Research Associate Industry experience: 4 years University of Maryland BA Finance Consumer Discretionary; Consumer Staples; Producer Durables Melissa A. Heathcote Member, Head Trader Industry experience: 22 years Trade Order Management & Broker Relations Credo Capital Management LLC 14

16 Client Service, Compliance, Marketing, & Operations Melanie H. Mendoza, CRCP Member, Chief Compliance Officer Industry experience: 29 years College of Notre Dame of Maryland BA Psychology Compliance Grace R. O Neill Client Service Manager Industry experience: 13 years University of Virginia BA Johns Hopkins University Carey School of Business MBA Client Relations & Communication Patricia A. Flaherty Member, Business Manager Industry experience: 23 years College of Notre Dame of Maryland BA Political Science Operations & Technology Infrastructure Melinda L. Torres Marketing Associate Industry experience: 4 years University of Delaware BA Business Administration Marketing & Business Development Credo Capital Management LLC 15